Class Action Settlement for Illegal Kickbacks. Told Ya!

About time!

I called it in 2007 when I said that those $60-90 “processing fees” were illegal “kickbacks” that Realtors and Brokers got for pushing Home Warranty companies. (see 2007 post).

My exact words in 2007 in case you missed it: “I wouldn’t be surprised if soon there is a class action lawsuit that will come after these firms and the Realtors that are colluding to the detriment of their client.”

Well it finally happened. Of course the defendant doesn’t agree with or accept any responsibility. Here is the website announcing the class action settlement. It is against AHS, the #1 home warranty company. The period is from May 2007 to Dec 2010. AHS was selling home warranties for $400 and giving the recommending broker $60 to $90 in “admin fees.”

Why does this matter? Kickbacks are illegal underRESPA (google it).

And in case you missed it, our “Excellence Comes Standard” ™ client bill of rights #4 has always been, “No Home Warranty Kickbacks.” I know many might say “Duh, of course my agent should not be getting bribed,” but your Duh is not reality and yes agents get excited over $60. And yes it is only $60, but I think it signals a deeper problem of disclosure and fiduciary duty.

“Are you working on my behalf of not!” $60 here and… $10,000 there when your agent throws you under the bus, without authorization, and tells the other agent you are willing to pay more. And don’t think I don’t see this a fair amount. (ie sucky agents)

(Focus Frank, focus) The settlement calls for about a $45 to $60 refund.

Here is the tricky part. The settlement says those that qualify are “settlement class member’s purchase of the home service contract.” [sic] And supposedly people are getting letters from AHS telling them that they may qualify. But where are those letters likely to go to? To the home being warrantied! Who most likely bought the warranty? The seller! Ha. The seller’s contact information is usually nowhere on the application to purchase the warranty. So how do THEY get paid. I know, kinda boring and academic, but interesting to me.

What now? What is the latest trick or workaround?

Now the warranty firms (some stopped the practice) actually have the agent “do something” so it won’t be considered an illegal kickback. Not sure exactly what is done (if you know, add it to the comments). Probably it will entail having the agent walk around the house and check off boxes.

What a mess.

Should have just followed my advice in 2007.

Frank Borges LLosa J.D.

Broker FranklyRealty.com

Owner FranklyMLS.com

P.S. Hartly is almost one. (pic by AbbyKellyPhoto)

  • 16
  • June
  • 2011

8 Responses to “Class Action Settlement for Illegal Kickbacks. Told Ya!”

  1. Linda says:

    Thanks for such a great topic. As usual it stays more corrupt than fixed. (letter going to property address)
    Hartly is precious, he needs a brother or sister.

    Thanks for all your updates.
    Linda

  2. Kimberly says:

    If you weren’t such a narcissist you would see you don’t know what you are talking about!! Even NAR is fighting against HUD with regards to all of this!!! AHS actually settled the suit to PROTECT any brokerage, agent or homeowner from being sued again up through 2011. 3 other major warranty companies have suits filed against them as well. On May 18th, a Federal Judge proclaimed that the new program that AHS has in place IS RESPA compliant!!!!! What do you have against warranty companies, title companies or mortgage companies. It seems you spend more time trying to cause issues than selling real estate!

  3. Kimberly says:

    One more thing…receiving “marketing fees” is NOT a violation of RESPA! Read section 8(c)!!!!

    Thanks for listening!! :)

  4. FranklyRealty.com says:

    Here is my inline reply to Kimberly who is a “Home Warranty” rep.

    If you weren’t such a narcissist you would see you don’t know what you are talking about!!

    F > Ouch. But ok, I can take it. Yes, I have been saying for years that the illegal kickbacks are dispicable. The practice of Realtors influencing their clients to buy a $400 warranty, in part to get a $60-$90 kickback. So I got a little cocky when a suit was settled in the matter. I’m sorry, my attempt to be entertaining didn’t seem to bode well for everyone.

    Even NAR is fighting against HUD with regards to all of this!!!

    F > Yes I know that. NAR is freaking out to save their members from massive liability because of all of their illegal kickbacks. So sure they are going to take the position that there is nothing wrong with getting payment for recommending warranties.

    AHS actually settled the suit to PROTECT any brokerage, agent or homeowner from being sued again up through 2011.

    F> Homeowner? Why again would they be sued?
    Yes of course the brokerages probably freaked out on AHS and said “make this go away or we will never sell your policies.” Of course they had to take the hit. I have not seen where in the settlement where it indemnifies the agent and broker, but I bet it does. So we agree.

    F> For those that don’t know the details of respa, my non-legal understanding is the violation is 3x damages for each party involved. So if you count the $90 kickback as damages, you would multiply that by 6 (Broker + HWC) and come up with $540 in damages (vs the $45-60 settlement). (some argue the entire $400 would be the damage since the client might never have bought the warranty without the agent’s pressuring them to buy it).

    3 other major warranty companies have suits filed against them as well.

    F > Actually 4, but yes.

    On May 18th, a Federal Judge proclaimed that the new program that AHS has in place IS RESPA compliant!!!!!

    F > I would love to see what you are referring to exactly. There are many statements put out by HUD that say otherwise and then add an “however, if.” You must be referring to that.
    For example: FHA Commissioner David H. Stevens said “a payment by an HWC for marketing services performed by real estate brokers or agents on behalf of the HWC that are directed to particular homebuyers or sellers is an illegal kickback.”
    But then perhaps what you are referring to is the follow: “an HWC may compensate a real estate broker or agent for services when those services are actual, necessary and distinct from the primary services provided by the real estate broker or agent, and when those additional services are not nominal and are not services for which there is a duplicative charge.”

    F > So that is the technicality. Have the Realtor walk around the house and perform “real” services and then they can get paid.

    What do you have against warranty companies, title companies or mortgage companies. It seems you spend more time trying to cause issues than selling real estate!

    F > With HWCs, my issue is the kickbacks. If your product is so good, why do you need to bribe the Realtor to push the product? Stand on your own merrits.
    F > Title companies. I love the title company I mainly use. But yes, I have problems with title companies that are backwards and can’t do modern day things like send commissions via wire. Instead they fed ex and paper checks. Give me a break.
    F > Mortgage companies. I don’t remember knocking them.

    Realtors should just do their job, which may or may not include mentioning the buyer’s home warranty options. That is their job. No need to get paid to push a particular company.

    Frank

  5. Tchaka says:

    I’m guessing that Kimberly is not a narcissist therefore she should be able to see she doesn’t know what she’s talking about. Or am I being too hopeful? ;-)

    Frank, I remember you writing that piece 4 years ago. What I’m waiting to see is if anyone will go after RE brokers who charge exorbitant ‘admin’ fees. I feel as though the Busby RESPA suit/verdict has been brushed under the carpet by many.

  6. tulsa realtor says:

    The agent who sold the warranty and got the $60.00 from AHS, from my point of view was not a respa violation as long as that agent “disclosed” that he or she was getting paid from AHS for promoting that warranty to either the home buyer or seller. I sodl several home with a warranty form AHS, and still do. I did not use AHS when they were paying a small portion ot the agents for the $60.00. I used them because ofthe service my clients got, and I still use AHS. They do not hold my buyers for lack of maintance from former sellers.

  7. FranklyRealty.com says:

    Sorry Tulsa,
    RESPA clearly states that disclosure is NOT an excuse. Let me repeat that. It remains illegal even if you disclose it.

    Now what? Guess you gotta go return all those kickbacks.

    Frank

  8. John Slocum says:

    I’m with you, Frank. I was once with a brokerage that went out of their way to have a HWC run-off to see which company would be the “preferred” provider and pay a “fee” back to the agent. I always gave more than one HWC brochure to my buyer (or, seller) and let them decide. Needless to say, I never was paid a HWC “fee” for one of those policies being sold.

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